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Moody's: Trinidad-Precision merger is positive
Moody's Investors Service said news that Precision Drilling Corp. has entered into an agreement with Trinidad Drilling Ltd. to acquire all common shares of Trinidad is credit positive.
The roughly C$1 billion offer is comprised of about C$550 million of Precision shares and C$477 million of assumed Trinidad balance sheet net debt as of June 30, Moody's said.
If the transaction closes as structured, this is a credit positive move for Precision because it will decrease leverage with its debt-to-EBITDA ratio expected to decline to less than 4.5x from higher than 4.5x, the agency said.
Precision is one of the largest drillers in the United States and the largest driller in Canada, Moody's said.
The improvement in leverage is conditioned upon the successful integration of Trinidad's fleet and expectation of positive free cash flow that is assumed to be directed to debt reduction, the agency said.
The prospect of the acquisition closing is uncertain due to an unsolicited competing offer made by Ensign Energy Services on Aug. 30, Moody's said.
The proposed Trinidad-Precision merger will trigger a change of control provision under Trinidad's $350 million senior unsecured notes, the agency said.
Precision will increase the size of its undrawn revolver to $600 million from $500 million on the closing of the merger, which will give the company the liquidity to repay all of Trinidad's notes at 101, Moody's said.
The ratings benefit from the improving drilling activity levels in the U.S., driven by higher oil and gas commodity prices and strong activity in the Permian Basin, the agency said.
Precision's credit profile is challenged by the expected high debt-to-EBITDA ratio in 2018 of 5.1x, Moody's said, and a ratio of 4.7x in 2019.
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